US investors size up Cuba as trade and travel rules relaxed
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A thaw in relations between Washington and Havana is expected to unleash a flood of US travel to the communist-run Caribbean island, presenting both alluring opportunities and complex challenges for US investors.
A package of new regulations designed by President Barack Obama’s administration went into effect on Friday, following announcements in December that the United States and Cuba would renew ties after more than a half-century of frozen diplomacy. The measures are meant to defang the decades-old US embargo on Cuba, making it easier for Americans to visit and do business there.
The new regulations will allow many Americans to travel to Cuba for dozens of specific reasons, like educational trips, without the need to get approval as previously demanded by authorities. They also expand the type of exports US firms can ship to Cuba, like construction equipment, and allow US citizens to finance small projects by budding Cuban entrepreneurs.
Strictly speaking, US tourism in Cuba remains illegal. But analysts expect a sharp increase in the number of visitors to Cuba – perhaps as many as one million annually – once US travel companies and international airlines learn how to navigate the new rules. Many experts also said the regulations are tantamount to a treasure map for US businesses and investors.
“I like to say that Cuba is the last American frontier,” Hugo Cancio, CEO of the Miami-based Fuego Enterprises, told FRANCE 24. Cancio edits OnCuba magazine, a periodical whose digital version is one of the most-read websites about Cuba in the world. “We advise a lot of US companies about investing in Cuba, about dealing with a communist government, and I can tell you everyone has a Cuba plan,” he said.
Cancio is not satisfied with only advising potential investors. His bilingual monthly magazine – which focuses on business, travel and culture – obtained permission to set up a bureau in Havana in 2013. He says he already counts 200 contributors across the island and in March will launch the magazine OnCuba Real Estate.
More than cigars
Naysayers have said Cuba has little or nothing to offer investors: two generations of dictatorial rule has left its population impoverished, its infrastructure virtually in ruins, telecommunications almost inexistent.
Cuban-made cigars and rum have earned an almost mythical status among Americans who, until now, have been banned from purchasing them. Americans will now be allowed to travel back with $100 in tobacco and alcohol, but Cancio says Cuba has much more to offer.
“There is a huge amount of potential for investors, for example in the areas of telecommunications, tourism, mining, media, infrastructure, and home building and repair,” he said. “It’s not going to be easy. Things will happen gradually, but the US can help Cubans rebuild their country, and Cuba can deliver shareholder value.”
Besides the new export exceptions – which will allow US companies to send such goods as building materials, tools and related supplies – the Obama administration has also given a green light to communications-related items such as computers, phones and software.
The new measures also include the option of using credit cards issued from US banks, which will eventually be of huge benefit to businesspeople who would otherwise have to travel with large amounts of cash.
Hurdles getting to Havana
Experts said that besides the Treasury department’s new detailed list of sanctioned goods and activities, the re-establishment of diplomatic relations was the single most important measure helping to open business channels.
“It removes a lot of the scepticism from the business community. This is key, because the same measures could have been enacted without the normalisation of relations. Now both governments are looking at each other with respect, and it fills others with confidence,” Cancio said.
However, US businesses interested in exploring the Cuban market – or those hoping to cater to US travelers – will still face obstacles.
Foremost, it remains unclear how goods destined for the private sector will be handled on the Cuban side, where all exports are managed by the state-run import company. US investors will also face the Cuban government’s own definition of acceptable privately owned companies that can receive funds from the US.
Stateside, businesses interested in making inroads in Cuba are likely to face hurdles from the US Congress. US-based groups opposed to normalising ties with the communist island, where basic freedoms are routinely stifled, have encouraged lawmakers to deny funding for a new embassy in Havana and to block confirmation of any future ambassadors.
The US Chamber of Commerce has made it clear it would like to see the embargo end, but only Congress has the power to lift it.
And while Cuba may be unchartered territory for the US business community, that has not been the case for companies from other Western countries.
“Canada and Europe have already made important investments,” said Tony Zamora, a semi-retired lawyer from Miami who specialises in foreign investments, particularly in Cuba. “Canada has made very substantial investments in the oil and gas sectors. Europeans, especially Spain, are very present in the hotel industry – and I understand are doing very well.”
Zamora, who was born in Cuba in 1941, left the island in 1960 in the wake of the revolution that brought Fidel Castro to power. He participated in the failed Bay of Pigs invasion and even spent two years in a Cuban prison. Today he is against the embargo, even if he remains opposed to the Castro regime.
“The embargo has done nothing. In a way, it is hurting US businesses,” he said.
Initial focus on ‘tourism’
Zamora warned that businessmen should not expect an overnight sea change as the two countries start building new bridges. But he thinks that change is inevitable.
“Debate about the embargo is still going to go on for a long time. I have heard many times that Cubans do not have any money to spend. But tourism is going to be a very big thing, even if we can’t call it that now, and there is almost nothing Cuba has to do to make that happen.”
The lawyer, who now makes several trips to Cuba each year, said the island has seven international airports and could easily handle an increase in the volume of flights from the US.
The island receives around three million foreign visitors each year, according to the latest figures by the World Bank. That number lags behind the Dominican Republic, the Caribbean’s prime holiday destination, but it is on par with neighbouring Puerto Rico and already far ahead of Jamaica.
“The hotels, which are already there, are reasonably good, even if they are not lavish,” Zamora said. “And now the food is much better. Today you can have a nice lunch and dinner. This was not the case a few years ago, and it has a lot to do with the Paladares.”
The Paladares – small, private eateries that are usually run out of family homes – are still a relative novelty on the island. But for Zamora and others, they are just more evidence that Cuba is open for business.